[Federal Register Volume 73, Number 226 (Friday, November 21, 2008)]
[Notices]
[Pages 70687-70689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-27756]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58959; File No. SR-NYSEArca-2008-120]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Regarding NYSE Arca 
Options Rule Governing the Anti-Money Laundering Compliance Program

 November 14, 2008.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on October 28, 2008, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
The Exchange has designated the proposed rule change as constituting a 
``non-controversial'' rule change under Rule 19b-4(f)(6) under the 
Act.\4\ The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Arca Options Rule governing 
the Anti-Money Laundering Compliance Program (``AMLCP''). The proposed 
rule change would clarify the frequency with which an Options Trading 
Permit (``OTP'') Holder must conduct independent testing of its AMLCP 
and would establish the qualifications of the person designated to 
perform AMLCP testing as well as provide guidelines for establishing 
the independence of the person performing the test. The text of the 
proposed rule change is available on the Exchange's Web site at http://www.nyse.com, at the Exchange's principal office, and at the 
Commission's Pubic Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of those statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Financial institutions, including broker-dealers, must develop and 
implement AML Programs pursuant to the Bank Secrecy Act,\5\ as amended 
by Section 352 of the Uniting and Strengthening America By Providing 
Appropriate Tools Required To Intercept and Obstruct Terrorism Act of 
2001 (``PATRIOT Act'').\6\ Consistent with Department of Treasury 
regulation 31 CFR 103.120 under the BSA, Exchange Rule 11.19 requires 
that each member organization develop and implement a written Anti-
money laundering (``AML'') program that specifies the minimum 
requirement for these programs.
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    \5\ 31 U.S.C. 5311 et seq.
    \6\ Public Law 107-56, 115 Stat. 272 (2001).
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    The AML program must include the development of internal policies, 
procedures and controls; the designation of a person to implement and 
monitor the day-to-day operations and internal controls of the program 
(commonly referred to as an ``AML Officer''); ongoing training for 
appropriate persons; and an independent testing function for overall 
compliance.
    The Exchange proposes to change NYSE Arca Options Rule 11.19(c) to 
clarify the language governing the frequency with which an OTP Holder 
must conduct independent testing of its AMLCP. Additionally, the 
Exchange proposes to add new commentary to Rule 11.19 that establishes 
qualifications of the person designated to perform AMLCP testing and 
guidelines for establishing the independence of the person performing 
the test. In addition, this proposed rule change will clarify the 
applicability of the rule to all OTP Holders and OTP Firms.
Timeframes for Independent Testing
    The proposed rule change would require that independent testing of 
AML programs be conducted, at a minimum, on an annual (calendar-year) 
basis by OTP Holders, unless the OTP Holder does not execute 
transactions for customers or otherwise hold customer

[[Page 70688]]

accounts or act as an introducing broker with respect to customer 
accounts (e.g., engages solely in proprietary trading, or conducts 
business only with other broker-dealers), in which case such 
independent testing is required every two years (on a calendar-year 
basis). The Exchange believes that these timeframes are reasonable in 
that they require more frequent testing of AML programs designed to 
monitor a business with customers from the general public, which may be 
more susceptible to money laundering schemes than a strictly 
proprietary business involving transactions with other broker-dealers. 
Furthermore, the one-year time frame for testing is consistent with 
standard industry practice in that it is similar to generally accepted 
guidelines for conducting tests in the context of, for instance, 
general audits and branch office visits. The proposed rule change 
establishes only a minimum requirement, and makes clear that members 
should undertake more frequent testing when circumstances warrant 
(e.g., should the business mix of the member or member organization 
materially change; in the event of a merger or acquisition; in light of 
systemic weaknesses uncovered via testing of the AML Program; or in 
response to other ``red flags'').
Qualification and Independence Standards for Testing
    Additionally, the Exchange proposes to add Commentary .01 to NYSE 
Arca Options Rule 11.19 that establishes qualifications of the person 
designated to perform AMLCP testing as well as guidelines for 
establishing the independence of the person performing the test. The 
proposed rule change would require the person conducting the 
independent test to have a working knowledge of the applicable BSA 
requirements and related regulations. Such person need not be an 
employee of the member or member organization since the responsibility 
being delegated is essentially an auditing function and, as such, it 
would not be unusual or ineffective for it to be performed by an 
independent outside party.
    The proposed rule change does not preclude an employee of the 
member or member organization from conducting the required independent 
testing of the AML Program; however the proposed ``independence'' 
standard would prohibit testing from being conducted by a person who 
performs the functions being tested, or by the designated AML Officer 
or by a person that reports to either.
AML Officer
    The proposed rule change would also clarify that the person 
responsible for implementing and monitoring the day-to-day operations 
and controls of the program must be an associated person of the member. 
This would not prohibit a member that is part of a diversified 
financial institution from designating an AML Officer that is employed 
by the member's parent company, sister company, or other affiliate. 
However, if such a person is designated as a member's AML Officer, the 
Exchange will consider that person to be an associated person of the 
member with respect to those activities performed on behalf of the 
member.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \7\ of the Securities Exchange Act of 1934 (the 
``Exchange Act''), in general, and furthers the objectives of Section 
6(b)(5) \8\ in particular in that it is designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to, and perfect the 
mechanisms of, a free and open market and a national market system, 
and, in general, to protect investors and the public interest. The 
Exchange believes that the proposed rule change is designed to 
accomplish these ends by requiring members to conduct periodic tests of 
their AML compliance programs and preserve the independence of their 
testing personnel.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) \9\ of the Act and Rule 19b-4(f)(6) \10\ thereunder. 
The Exchange believes that the proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest, (ii) impose any significant burden on competition, and (iii) 
will not become operative prior to 30 days from the date on which it 
was filed, or such shorter time as the Commission may designate, if 
consistent with the protection of investors and the public 
interest.\11\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6).
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    Rule 19b-4(f)(6)(iii) \12\ requires the Exchange to give the 
Commission written notice of the Exchange's intent to file a proposed 
rule change along with a brief description and text of the proposed 
rule change, at least five business days prior to the date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied this requirement. The Exchange 
also requests that the Commission waive the 30-day operative delay 
contained in Exchange Act Rule 19b-4(f)(6).\13\ The Exchange believes 
that waiver of the 30-day operative delay will allow the Exchange to 
immediately begin requiring members to conduct periodic tests of their 
AMLCP and preserve the independence of their testing personnel. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission believes that the proposed rule is designed to 
accomplish these ends by requiring OTP Holders to conduct periodic 
testing of their AMLCPs, preserve the independence of their testing 
personnel, and by making the Exchange's program requirements consistent 
with those at other exchanges and self-regulatory organizations.\14\ 
The Commission therefore grants the Exchange's request and designates 
the proposal to be operative upon filing.\15\
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    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ Id.
    \14\ See e.g., NASD Rule 3011, NYSE Rule 445.
    \15\ For purposes of waiving the 30-day operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition and capital formation. See 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing,

[[Page 70689]]

including whether the proposed rule change is consistent with the Act. 
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NYSEArca-2008-120 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NYSEArca-2008-120. 
This file number should be included on the subject line if e-mail is 
used. To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of the filing will also be available for 
inspection and copying at NYSE Arca's principal office and on its 
Internet Web site at http://www.nyse.com. All comments received will be 
posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2008-120 and should be 
submitted on or before December 12, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-27756 Filed 11-20-08; 8:45 am]
BILLING CODE 8011-01-P